Yoshida in China: Desperate for baseband, industrial and M&A

China's smartphone market is huge, but it can't sustain so many China fabless offering similar multicore apps processors.

SHANGHAI – As many as 350 to 500 fabless chip companies have popped up in China in the last several years. As I cover China’s electronics industry, there’s this one nagging question: Where do they all go from here?

Everyone I met here last week--from SMIC’s CEO to RDA Microelectronics CEO--agrees on one thing: Among those fabless, a lot of “weeding out” is happening as we speak.

That’s inevitable.

After all, no matter how huge China’s smartphone market might be, the local market can’t possibly sustain so many vendors all offering similarly designed multicore application processors.

So, what’s next?

Over a cup of coffee in a hotel near the Shanghai New International Expo Center, Jian-Yue Pan, a Synopsys vice president responsible for the Asia-Pacific region, made a few predictions. [Let’s trust that Pan, an EDA-industry bigwig who lives and breathes the local Chinese market, ought to know a few things.]

But I thought almost all Chinese fabless companies--except Spreadtrum and RDA--are doing only apps processors for the smartphone market. I told Pan, “I’ve always wondered about what they’d have to do next.”

Pan deadpanned, “Exactly. They’re thinking the same thing.”

They desperately need modems for integration into their apps processors. Pan, refraining from naming names, said he’s aware of at least a couple of new players.

Industrial chips

Second, in the next two to three years, Chinese fabless companies are poised to break into markets for “industrial ICs,” Pan noted. Again, Pan is seeing the emergence of “several players”--focused in these fields and ready to emerge.

The difference in industrial applications is that unlike smartphone or tablet chips serving consumers, this is a truly diverse market. The total available market for each specific application won’t be so big. It’s a segment that demands Chinese fablesses to show more patience and experience. “And you need a bigger portfolio to support industrial applications,” Pan added.

Industrial chips include anything from automotive applications and smart grids to medical and embedded systems for industrial markets.

Freescale, Texas Instruments and NXP--who wisely steered clear of the mobile market--are penetrating the Chinese market, armed with an industrial/embedded agenda. It’s time for all of those multinationals to be on alert.

We may be seeing the first sign of maturity among China fabless firms. Or, this could be just another FUD that Chinese have all decided to go after.

Vincent Tai, RDA’s chief, observed, “Although I haven’t studied the industrial market very much, I imagine it to be fragmented with lots of small segments. It must be pretty tough to scale their business up.”

Companies are doing the baseband processors because that is the easy part. Buy an Arm core, which is what everyone wants to use, integrate some peripherals and you can offer something. The major companies are doing their own apps processors but they are having problems with the modems. The hard part is the complexity of the modem and the software protocol stacks that go with it. You can find companies that will develop a protocol stack for you but don't expect it to work as advertised.
I think many of these baseband IC companies you are spotlighting, plan to get some hardware ICs out there and hope somebody writes some software to go with it. Good luck with that. You're going to be staring at your pretty hardware ICs for a couple of years.